Tag: oecd

A story in today’s Wall Street Journal discusses the latest report from the Organization for Economic Cooperation and Development on ”prime age” (25-54) labor-force participation rates among its 35 member countries through the last quarter of 2017. While the US rate has improved, it remains below the average OECD rate, lagging behind such developed countries as Japan and the UK. What’s puzzling is why the authors of the report decided to weigh in on the opioid overdose issue.

Noting that per capita opioid prescriptions in the US are “significantly higher” than in other OECD countries, the report finds that participation rates for all adults (not limited to prime age) vary from state to state. The rate was lowest in West Virginia at 53 percent, and highest in North Dakota at 71 percent. It mentioned that opioid prescription rates are “generally higher” in those states with lower labor participation rates, leading it to declare that the use of opioid drugs “appears to be connected” to labor market conditions.

The number of opioid prescriptions has been dropping steadily in the US since it peaked in 2010. In fact, high-dose opioid prescriptions are down over 41 percent. An April 2018 report from the American Medical Association trumpeted a 22 percent decrease in opioid prescriptions between 2013 and 2017.

The false narrative dominating the media and driving opioid policy blames opioid abuse and overdoses on doctors addicting their patients to pain pills. The near quadrupling of the sales of prescription opioids between 1999 and 2014 is often used to help make the case.

Yet correlation does not imply causation. The AMA made note of this in its April report on the dramatic drop in prescriptions when it stated:

It is notable that every state has experienced a decrease, but this is tempered by the fact that deaths related to heroin and illicit fentanyl are increasing at a staggering rate, and deaths related to prescription opioids also continue to rise. These statistics again prove that simply decreasing prescription opioid supplies will not end the epidemic.

Data from the Centers for Disease Control and Prevention show that overdoses—especially from fentanyl and heroin—continue to soar as prescription rates decline on the state level as well.

The principle that correlation does not imply causation also applies to the observations in the OECD report.

The OECD report mentions that the overall labor-force participation rate tends to be lower in states where disability rates are higher. And West Virginia is a leader among states with respect to the percentage of its population on Social Security Disability benefits at 3.9 percent. It therefore points to a “possible connection between drug use and disability,” adding “addiction ultimately impairs participation.” It is certainly reasonable to expect that patients disabled by chronic severe pain conditions will be prescribed opioids. But there is no evidence that opioid use increases disability rates. In fact, Cochrane systematic studies in 2010 and 2012 found an addiction rate of approximately 1 percent in chronic non-cancer pain patients on long-term opioids. And many chronic pain patients are gainfully employed but have to stop working when they are cut-off from their opioids and their pain becomes debilitating.

As I have written here and here, the overdose crisis was never about doctors and patients. It has always been primarily the result of non-medical users accessing drugs in the dangerous black market that results from drug prohibition.

Because correlation does not imply causation the OECD report carefully avoids drawing conclusions by using phrases like “appears to be connected” and “generally higher.” But its allusion to a connection between opioid prescribing and the labor participation rate is intellectually irresponsible and seems a gratuitous attempt to patronize the opioid policy establishment.

If I was Captain Ahab in a Herman Melville novel, my Moby Dick would be the Organization for Economic Cooperation and Development. I have spent more than 15 years fighting that Paris-based bureaucracy. Even to the point that the OECD threatened to throw me in a Mexican jail.

My main gripe is that the OECD, in hopes of propping up the European welfare states that dominate its membership, tries to enable big tax increases by undermining tax competition.

And, to add insult to injury, the bureaucrats at the OECD get a special exemption so their gold-plated salaries are tax free, even though they spend so much time trying to impose higher taxes on the rest of us.

So when I had a chance earlier today to comment on the OECD’s statist agenda, I could barely contain myself

Notwithstanding the glitch at the beginning (the perils of a producer talking in my ear), I greatly enjoyed the opportunity to castigate the OECD.

I wrote a rather favorable column a few days ago about a new study from economists at the Organization for Economic Cooperation and Development. Their research showed how larger levels of government spending are associated with weaker economic performance, and the results were worth sharing even though the study’s methodology almost certainly led to numbers that understated the case against big government.

Regardless, saying anything positive about research from the OECD was an unusual experience since I’m normally writing critical articles about the statist agenda of the international bureaucracy’s political appointees.

That being said, I feel on more familiar ground today since I’m going to write something negative about the antics of the Paris-based bureaucracy.

The OECD just published Revenue Statistics in Asian Countries, which covers Indonesia, Singapore, Malaysia, South Korea, Japan, and the Philippines for the 1990-2014 period. Much of the data is useful and interesting, but some of the analysis is utterly bizarre and preposterous, starting with the completely unsubstantiated assertion that there’s a need for more tax revenue in the region.

…the need to mobilise government revenue in developing countries to fund public goods and services is increasing. …In the Philippines and Indonesia, the governments are endeavoring to strengthen their tax revenues and have established tax-to-GDP targets. The Philippines aims to increase their tax-to-GDP ratio to 17% (excluding Social Security contributions) by 2016…and Indonesia aims to reach the same level by 2019.

Needless to say, there’s not even an iota of evidence in the report to justify the assertion that there’s a need for more tax revenue. Not a shred of data to suggest that higher taxes would lead to more economic development or more public goods. The OECD simply makes a claim and offers no backup or support.

But here’s the most amazing part. The OECD report argues that a nation isn’t developed unless taxes consume at least 25 percent of GDP.

These targets will contribute to increasing financial capacity toward the minimum tax-to-GDP ratio of 25% deemed essential to become a developed country.

At the risk of understatement, I’m not a fan of the Organization for Economic Cooperation and Development. Perhaps reflecting the mindset of the European governments that dominate its membership, the Paris-based international bureaucracy has morphed into a cheerleader for statist policies.

But my disdain for the leftist political appointees who run the OECD doesn’t prevent me from acknowledging that the professional economists who work for the institution occasionally generate good statistics and analysis.

For instance, I’ve cited two examples (here and here) of OECD research showing that spending caps are the only effective fiscal rule. And I praised another OECD study that admitted the beneficial impact of tax competition. I even listed several good examples of OECD research on tax policy as part of a column that ripped the bureaucracy for some very shoddy work in favor of Obama’s redistribution agenda.

And now we have some more good research to add to that limited list. A new working paper by two economists at the OECD contains some remarkable findings about the negative impact of government spending on economic performance. If you’re pressed for time, here’s the key takeaway from their research:

Governments in the OECD spend on average about 40% of GDP on the provision of public goods, services and transfers. The sheer size of the public sector has prompted a large amount of research on the link between the size of government and economic growth. …This paper investigates empirically the effect of the size and the composition of public spending on long-term growth… The main findings that emerge from the analysis are… Larger governments are associated with lower long-term growth. Larger governments also slowdown the catch-up to the productivity frontier.

For those who want more information, the working paper is filled with useful information and analysis.

But one tiny silver lining to this dark cloud is that it’s given me an opportunity to notice how these groups have settled on a common strategy of urging higher taxes for the ostensible purpose of promoting growth and development.

Seriously, this is their argument, though they always rely on euphemisms when asserting that politicians should get more money to spend.

The OECD, for instance, has written that “Increased domestic resource mobilisation is widely accepted as crucial for countries to successfully meet the challenges of development and achieve higher living standards for their people.”

The Paris-based bureaucrats of the OECD also asserted that “now is the time to consider reforms that generate long-term, stable resources for governments to finance development.”

The IMF is banging on this drum as well, with news reports quoting the organization’s top bureaucrat stating that “…economies need to strengthen their fiscal frameworks…by boosting…sources of revenues.” while also reporting that “The IMF chief said taxation allows governments to mobilize their revenues.”

And the UN, which has “…called for a tax on billionaires to help raise more than $400 billion a year” routinely categorizes such money grabs as “financing for development.”

As you can see, these bureaucracies are singing from the same hymnal, but it’s a new version.

I especially object to the way these international bureaucracies are cheerleaders for bigger government and higher tax burdens. Even though they ostensibly exist to promote greater levels of prosperity!

It took awhile, but I eventually came up with (what I hope is) a clever idea. And when a former Cato intern with artistic skill, Jonathan Babington-Heina, agreed to do me a favor and take the concept in my head and translate it to paper, here are the results.

I think this hits the nail on the head.

Excessive government is the main problem plaguing the global economy. But the international bureaucracies, for all intents and purposes, represent governments. The bureaucrats at the IMF and OECD need to please politicians in order to continue enjoying their lavish budgets and exceedingly generous tax-free salaries.

So when there is some sort of problem in the global economy, they are reluctant to advocate for smaller government and lower tax burdens (even if the economists working for these organizations sometimes produce very good research on fiscal issues).

Instead, when it’s time to make recommendations, they push an agenda that is good for the political elite but bad for the private sector. Which is exactly what I’m trying to demonstrate in the cartoon,

But let’s not merely rely on a cartoon to make this point.

In an article for the American Enterprise Institute, Glenn Hubbard and Kevin Hassett discuss the intersection of economic policy and international bureaucracies. They start by explaining that these organizations would promote jurisdictional competition if they were motivated by a desire to boost growth.

…economic theory has a lot to say about how they should function. …they haven’t achieved all of their promise, primarily because those bodies have yet to fully understand the role they need to play in the interconnected world. The key insight harkens back to a dusty economics seminar room in the early 1950s, when University of Michigan graduate student Charles Tiebout…said that governments could be driven to efficient behavior if people can move. …This observation, which Tiebout developed fully in a landmark paper published in 1956, led to an explosion of work by economists, much of it focusing on…many bits of evidence that confirm the important beneficial effects that can emerge when governments compete. …A flatter world should make the competition between national governments increasingly like the competition between smaller communities. Such competition can provide the world’s citizens with an insurance policy against the out-of-control growth of massive and inefficient bureaucracies.

Using the European Union as an example, Hubbard and Hassett point out the grim results when bureaucracies focus on policies designed to boost the power of governments rather than the vitality of the market.

…as Brexit indicates, the EU has not successfully focused solely on the potentially positive role it could play. Indeed, as often as not, one can view the actions of the EU government as being an attempt to form a cartel to harmonize policies across member states, and standing in the way of, rather than advancing, competition. …an EU that acts as a competition-stifling cartel will grow increasingly unpopular, and more countries will leave it.

They close with a very useful suggestion.

If the EU instead focuses on maximizing mobility and enhancing the competition between states, allowing the countries to compete on regulation, taxation, and in other policy areas, then the union will become a populist’s dream and the best economic friend of its citizens.

“In light of the alarming levels of unemployment and underemployment in this country, it is indefensible to continue offering lawful permanent residence to more than one million foreign nationals every year.”

The GOP platform statement assumes that those on green cards take jobs from Americans, an assumption that is incorrect (see here, here, and here for more information).

What’s actually indefensible about our green card system is how few of them come here for work purposes. First, legal immigrant inflows to the U.S. as a percent of our population are small compared to other developed countries (Figure 1). The only countries with fewer immigrant inflows as a percent of their populations are Portugal, Korea, Mexico, and Japan. The United States does allow more immigration as an absolute number than any other country but we also have a very large population, making these annual flow figures seem small.

Figure 1

Immigrant Inflows as a Percent of Population, 2013

Sources: OECD, EuroStat, E-Stat, Citizenship and Immigration Canada.

These relatively small immigrant flows have only produced an immigrant percentage of our population that is midrange among the OECD countries (Figure 2). New Zealand has the highest at 28.4 percent of their population while Mexico has the lowest at 0.84 percent of theirs. The United States is in the middle at 13 percent. Our legal immigration system is so restrictive that without unauthorized immigrants the U.S. population of the foreign-born would only be about 9.5 percent of our population – a 28 percent reduction in present numbers.

Figure 2

Immigrant Stock as a Percent of the Population, 2013

Source: OECD.

Green card workers admitted as a percentage of the total annual immigrant inflow are far lower here than in other countries (Figure 3). Only about 7.7 percent of all green cards annually issued by the U.S. government are for workers – virtually all of them high skilled. The employment-based green card system allowed about 140,000 green cards to be issued annually but that number also includes the family members of those workers. In 2014, 56 percent of green cards set aside for skilled workers actually went to family while 44 percent were for the workers themselves. The GOP platform wants to decrease this already small number of green cards for skilled workers even further.